Smart Grid versus a New Blue Mustang

When smart grid was in its infancy the toy of choice was a smart meter. Like a stuffed animal in the crib every home had one. Now smart grid is reaching adolescence and the toys cost more. A lot more.

The smart grid phenomenon is maturing and that is shifting the way the electric power industry addresses the changes, opportunities and risks it brings. Smart grid burst onto center stage stimulated by more than $3 billion in Federal stimulus money like a teenager with raging hormones. Instant gratification was provided by spending on flashy smart meters and pimped out communications systems used to collect the data the meters spit out.

Yes there were growing pains, big data, too much data, worries over who had access to data and what they would do with it. These issues are largely being worked out without major hiccups even while a few locations still quarrel over the health, safety and other objections to going digital.

A new study by Zpryme called The Optimized Grid was released in July 2012 charting the forecast of smart grid growth around the world through 2020. The study says the current opportunity for smart grid vendors is expected to grow to nearly $34 billion by 2020 compared to about $6 billion today.

Holy Rate Hikes!

North America’s global market share of that growth will shrink from 44% of today’s market to about 28% as growth in Asia Pacific catches up. Even so that 28% of $34 billion represents about $9.5 billion of 2020 market opportunity in North America compared to about $2.6 billion today.

North America is expected to reach saturation in deployment of smart meters by 2014—that will be the easy part of the transition to smart grid. The tougher and longer to implement process of distribution automation and grid optimization, the evolution of the distributed energy strategies for the future and the transition in fuel use and technology mix will take longer to accomplish.

Optimizing the power grid is a slow process of upgrading and integrating new technologies to improve efficiency, make power flows and communications works seamlessly two-ways instead of just from the utility to the user. Integrating renewable energy, combined heat and power, microgrids and thousands to new entrants as market participants democratizes the grid like never before but also dramatically increases the security risks and vulnerabilities.

Experiences like the recent storms in the Eastern interconnect which took down power lines and left millions in the dark for days sensitize both utilities and customers to the need for better grid reliability which we often take for granted. Distribution automation will never prevent a tree from falling on a power line but it might be able to isolate the outage, re-route service from other sources, and even ‘self-heal’ some equipment malfunctions or restarts—-but that will cost money—big money! Making all these smart grid improvements is what is going to absorb the bulk of that investment that gets North America to a $9.5 billion smart grid market by 2020.

While digital technologies have improved substantially, distribution automation is not a new idea. What jump started smart grid was the willingness of the Federal Government to spent $3.4 billion in Federal stimulus money on it. Now that money is spent and distribution automation is back where it started. To win approval from state public utility regulators in rate increases, DA must be able to produce benefits worth its costs. And since we are now going to be spending our own money not Uncle Sam’s (WAIT! That is our money too!) the burden of proof is higher.

Yes, your utility rate will go up, but you already knew that.

The question is whether it will be worth it when the smart grid is fully built out. The engineers estimates that smart grid improvements could reduce distribution losses by as much as 30%. The U.S. Energy Information Administration says that US electric distribution losses totaled 261 billion kWh in 2010 so clearly there is room for improvement. Worldwide the loss number is higher with average worldwide electricity losses averaging about 9%.

In 2005, the Electric Power Research Institute (EPRI) estimated the cost for integrating distribution substation automation to the grid infrastructure at about $10 billion and feeder automation at $70 billion. But those estimates are old and the cost is likely to be higher, much higher as new regulations for security, interoperability standards, regulations and other costs are added up.

And that remains the question ratepayers want answered. Will the benefits of smart grid be worth the cost? Should I give my kid the keys to my old Honda with lots of miles on it but still many miles left even if I have to fix it every so often—-or buy the kid that new Mustang convertible he wants! As ratepayers we won’t get that choice—we will pay the equivalent of many new Mustangs in higher rates but you will never get to drive it and chances are your power is still going to go off when the wind takes down some tree.